Q&A: Yashwant Sinha on India’s Economy

Yashwant Sinha is a senior leader of India’s main opposition Bharatiya Janata Party and a former finance minister. He is currently chairman of Parliament’s committee on finance.

Mr. Sinha talked with The Wall Street Journal about the Indian economy, steps the government can take to boost growth, and what he expects from India’s national budget Thursday. Edited excerpts:

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The Wall Street Journal: What are the ills facing India’s economy?

Yashwant Sinha: Instead of looking to itself, the government is putting all the blame on the global crisis. I will refer to a report brought out by the IMF [International Monetary Fund], where it says the impact of the global crisis has been marginal [on India]. The domestic factors are responsible for bringing the economy to its knees. There is an overall loss of confidence in India, whether in India or abroad.

WSJ: What steps can the government take to revive the economy?

Mr. Sinha: One single step that can revive the economy is the restoration of confidence in India and in India’s story. But I don’t think restoration of confidence is within the power of this government.

We should try to curtail the fiscal defect. I am with the finance minister as far as expenditure cuts are concerned. Curbing inflation will create the space for the RBI [Reserve Bank of India] to start reducing interest rates. When the RBI starts reducing interest rates and makes some reduction in the cash reserve ratio, more money will become available to corporates so they can go and invest.

Improve the power sector; build more roads; deal with the telecom sector’s problems; give more attention to agriculture and rural development, where the purchasing power lies.

Housing can become the single most import driver of economic growth, if it is properly tackled. Domestic savings have come down drastically in the last few years, to about 29%. The level has to go back to 36% of GDP.

WSJ: What do you expect in the budget, especially in an election year?

Mr. Sinha: They are already talking of the food security bill. It will add another one trillion rupees ($18.5 billion) burden on the fiscal side, but the government will go ahead. No political party is going to oppose such a populist move.

We have suffered for the last five years. If they take liberties with this budget, then we are out for the next 10 years. We will be in dire straits as far as the economy goes. We are in for sub 6% growth in years to come.

WSJ: What are your views on the spending cuts being undertaken by the finance minister to keep the fiscal deficit at 5.3% of GDP this fiscal year?

Mr. Sinha: My complaint against this government has been that it didn’t bother to repair the roof when sun was shining up to 2007-08 [when gross domestic product was growing over 9%.] Now it’s pouring, and you can’t repair the roof when it’s pouring.

I have no quarrel with spending cuts. This year the finance minister will cut expenditure for next year. The media reports that planned expenditure is going to be raised by only 5%, which won’t take care of even inflation. This will definitely cause short term pain because the government’s investment in the Indian economy plays a significant role.

The easiest route that a finance minister can take is to cut expenditure. This is what Mr. Chidamabaram is doing.

WSJ: What can the finance minister do to rein in the fiscal deficit?

Mr. Sinha: He is well known for adopting tricks of the trade. Like he will push expenditure to next year and realize more revenue this year. He will show that he has achieved a fiscal defect of 4.8% or 4.7% [the target for next fiscal year starting April 1.]

Then the whole world will stand and applaud him as the best FM India has ever seen without realizing that he is responsible for all the problems we are facing today. I am praying to God that in this budget the government won’t cause further damage to the economy.

WSJ: What is the BJP’s stance on foreign direct investment in insurance and pensions?

Mr. Sinha: The matter is under discussion in the party and with the government. We will see what emerges. Having said that, I would like to point out that India achieved 9% growth without 49% FDI in insurance or pension. Let the bills go through, I have no objection. But to say that the bills will be magical as far as the economy is concerned, I don’t buy that theory. We had a principled opposition to FDI in multi-brand retail. But the BJP has never been against FDI per se.

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